Back to School 2021: Supply Chain Shortages and High Demand

Preparing for back-to-school shopping this year, retailers faced a tremendous challenge: anticipating consumer needs at a time when Covid case numbers are shifting month to month and the conditions of in-person learning remain unclear. Add supply chain squeezes and rising consumer expectations, and BTS, which is supposed to be among many retailers’ best seasonal events, risks proving disastrous.

Aptos VP of Retail Innovation Nikki Baird connected with Street Fight to explain the landscape.

What are the complications retailers are facing as they tackle merchandising and inventory management generally and leading up to the back-to-school season?

First, it’s important to remember that most of the inventory that is on shelves right now or heading there in a few weeks was planned and purchased 9–12 months ago. Think about where we were in the pandemic at that point in time – kids went back to school on a delayed basis and mostly virtual. 2020’s BTS season was shifted out almost a full month, and was great for electronics but not so great for everything else since kids were at home. There had been one stimulus check distribution but no certainty that there would be any others. The fall surge of COVID-19 was starting to happen, and no one was sure that the schools that did offer an in-person option would be able to stay open. There was an enormous amount of uncertainty. 

In response to that, we saw retailers be more conservative with their purchase plans, both by narrowing the assortment they would carry and by placing more-conservative commitments for inventory depth. I think there was some thought at that point that if things got better instead of worse, retailers would be able to possibly secure more inventory in January or February of 2021, but those possibilities did not open up.

The supply chain is still very disrupted: there are COVID-19 surges in manufacturing countries; everyone who cut back on capacity last year is being slow to bring that capacity back online, even in places where vaccination rates are high; there is limited capacity at places like ports that process imports, and there is just the uncertainty when it comes to demand. Retailers knew that demand would come back at some point, but had no insight as to when or how much they needed to buy. 

In short, families should expect shortages in just about everything. And then, due to the vaccinations, parents’ desperation to send kids back to school in person no matter what, and stimulus money and additional child tax credits, there is way more demand than I think retailers anticipated coming back so quickly. If you look at year-over-year sales comparisons, 2021 months are coming in higher than 2019. 

Has inventory management gotten more complicated amid the growing importance of e-commerce?

It definitely has. Retailers have responded to the surge in online demand by draining inventory from stores and then holding back more inventory than normal to keep the e-commerce distribution center full so that they can fulfill online demand in the most cost-efficient way possible. This has interesting implications for stores and back-to-school shopping. 

BTS is a big store-driven event in part because kids grow – it tends to be a big “try it on” event. With consumers more comfortable going back to stores, retailers really have to decide whether they’re going to send inventory to stores for that kind of rush. If they don’t send inventory to stores, and consumers show up there to buy, all retailers will have done is confirm for consumers that online is the best place to buy anything, and I don’t think that it’s in the retailers’ interest to do that. It could really damage the health of stores long term.

What technologies are intervening in this space? How would you describe the status quo? Have lots of retailers gotten on board with tech advancements?

We see a lot of retailers focusing on omnichannel order management. The retailers that had strong omni capabilities going into the pandemic have fared much better because they have the flexibility to connect demand to supply no matter where the demand comes from and no matter where the inventory happens to be. Having that flexibility removes some of the pressure with regards to “getting it right” when it comes to placing inventory, because if you get it wrong you can use order management to fix it. 

But that doesn’t happen without a cost, and we’re seeing even more advanced omni retailers looking back at their omni processes to make sure they are doing things profitably. And for sure we’re seeing retailers that have delayed digital transformation now very motivated regarding the need to now make investments there. The pandemic exposed just how much flexibility is worth, and just how much it costs you if you can’t make quick changes to respond to disruptions.